This problem may distract Cosco's ability to focus on the Bright Field case??

Wall Street Journal
March 26, 1997 Page A-14
by Craig S. Smith

Blum Associate's Link to China
Hinders Plans to Convert Base

SHANGHAI, China -- Sen. Dianne Feinstein has called for a national-security review of a Chinese company's controversial plan to take over a closed U.S. military base in California. But if she wants to learn more about the deal, she might ask her husband, Richard Blum.

The managing director of an investment partnership that Mr. Blum established is a consultant to a unit of China Ocean Shipping Co., or Cosco, the state-owned Chinese company that has won the rights to lease and redevelop the 145-acre Long Beach Naval Station, according to Cosco. The project has drawn intense scrutiny amid signs Beijing may have tried to buy its way into U.S. politics last year. Sen. Feinstein has said she was one of the members of Congress warned by the Federal Bureau of Investigation that China might try to influence the lawmakers through improper donations.

Last week, Sen. Feinstein and her Democratic colleague from California, Sen. Barbara Boxer, urged national security advisor Samuel Berger and Secretary of Defense William Cohen to clear the air over the Long Beach project so the port's conversion -- which they said would create between 900 and 1,600 jobs and about $116 million in local wages -- can go ahead. "We would like to know if you feel there are any security reasons that this planned reuse should not occur," the senators wrote.

There is no evidence Ms. Feinstein's merchant-banker husband played a role in helping Cosco win the Long Beach deal. But the managing director of Mr. Blum's investment firm, Newbridge Capital Ltd., acts as a consultant to Cosco Hong Kong Holdings Ltd., a main Cosco subsidiary, Cosco said Tuesday. From late March to late September last year, that Newbridge director, Peter Kwok, also sat on the board of Cosco's Hong Kong-listed arm, Cosco Pacific Ltd., according to Kelvin Wong, a Cosco director.

Mr. Kwok said he advises Cosco Hong Kong on equity and bond sales, but stressed it is a private arrangement. "Dick Blum doesn't know the Cosco people at all," he said. He added that he knows nothing about Cosco's Long Beach deal.

A spokeswoman for Sen. Feinstein said Mr. Blum was unaware of Mr. Kwok's ties to Cosco. "We're not totally aware of what [Mr. Kwok's] relationship" was with Cosco, said the spokeswoman, Susan Kennedy. Ms. Kennedy said Mr. Blum himself has "no relationship at all" with Cosco. Mr. Blum's office referred all calls to Sen. Feinstein's office.

Business Began in 1980s

Mr. Blum's associates say he began doing business in China when Ms. Feinstein was San Francisco's mayor in the 1980s. She set up a sister-city tie between San Francisco and Shanghai, and made a friend in Shanghai's mayor at the time, Jiang Zemin, now China's president. Mr. Blum has disclosed little about his investments in China, and Sen. Feinstein's office said he is unlikely to say more. Ms. Feinstein and her husband say they don't share information.

The Long Beach base controversy comes at a time when reports of the close ties between money and politics in Asia are dogging President Clinton and the Democratic Party. The 55-year-old base was shut nearly three years ago as part of a reduction in military bases around the U.S. and was put up for redevelopment. Cosco offered to pay $14.5 million in annual rent and invest $200 million to turn it into a cargo port to serve its West Coast shipping needs. The plan was approved Monday by Long Beach's Harbor Commission.

Earlier this year, when word got out that President Clinton, who backed the base conversion, had met a Cosco adviser at the White House through the intercession of a Democratic Party donor, speculation flared that there were political motives behind the decision to let Cosco redevelop the site. If there was lobbying on behalf of the project, it was likely bipartisan: Cosco's literature lists Reagan administration secretary of State Alexander Haig as an adviser and includes a reproduction of a 1994 note from Mr. Haig congratulating Cosco on its rapid growth.

Defense Department spokesman Kenneth Bacon said Tuesday the review Sen. Feinstein sought is under way, but he discounted worries of a national-security problem. "It seems to me that this is a situation where people have added two and two, and gotten 22," he said.

Shanghai Partnership

Mr. Blum, a Democratic fund raiser, began his China business shortly after he and Ms. Feinstein met then-Shanghai Mayor Jiang. The Shanghai government joined Mr. Blum as partner in one of his first projects, Golden Bridge Mansion, a 28-story apartment tower in Shanghai. Work on the building continued after the 1989 Tiananmen Square upheaval, despite a call by Ms. Feinstein's successor as mayor for a ban on San Francisco-based business with China.

In 1994, David Bonderman, an associate of investor Robert Bass, joined Mr. Blum to form Newbridge Capital, raising more than $100 million to invest primarily in China. It was Newbridge which hired Mr. Kwok, a star investment banker from Bankers Trust, to run the Asian operations.

Newbridge joined a troubled Hong Kong-listed property developer, also backed by China, in taking a stake in a state-owned steel mill in China's industrial northeast. More recently, Newbridge invested in a powdered soybean-milk manufacturer north of Shanghai. Mr. Kwok, as Newbridge Hong Kong's managing director, continues to act as a consultant to Cosco Hong Kong, according to Mr. Wong, the Cosco Pacific director. Mr. Wong declined to describe the nature of the consulting.

At a news briefing Monday to announce Cosco Pacific's 1996 results, the company's vice chairman berated the press for questioning the propriety of the Long Beach deal, which he said was negotiated on purely commercial terms by Cosco's head office in Beijing.


-- Marcus Brauchli in Washington and Erik Guyot in Hong Kong contributed to this article.
Copyright © 1997 Dow Jones & Company, Inc. All Rights Reserved.


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